Unocal Case

SUMMARY

Union Oil Company of California (Unocal) is a company founded in 1890 in USA. It has since expanded into a global energy conglomerate by 1997. John Imle, President of Unocal is faced with contending with the challenge of the $1.2 billion Yadana Project that is caught in the crossfire of political unrest both within Burma as well as with the United States. If implemented, this project can fetch an estimated 12 billion dollars (400 million x 30 year contract), over the next 30 years, to be split within the 4 participating conglomerates.

OPTIONS

Imle is about a year away from the completion and the full operation of the Yadana project. By 1998, the entire project would be operational. Imle have 2 options. Either, to continue with the Yadana project despite the mounting political challenges that is associated with it, or discontinue the project and withdraw from the project. By continuing with the project, Imle may face the following outcomes.

The best-case scenario is to complete the project and reap the benefits. The worst-case scenario is to pull out from the project. This way, Unocal would not only lose the Yadana project but risk losing the rest of it's current investments in Burma (73 million barrels of oil equivalent) and possibly losing some of it's investments in Thailand as well (since it borders Burma). Not to mention, losing out in the lucrative growth opportunities of Southeast Asia. However, he has to keep in mind the completion of the project is just the first step, these challenges will continue as long as Unocal has a presence in Burma.

Decision

In valuating the above possibilities, my recommendation is for Imle to strive towards finishing the Yadana project. However, in the event the project fails, Unocal should concurrently step up expansion opportunities in their existing markets like Indonesia, Philippines, Thailand, Vietnam and explore other potential markets across Southeast Asia. He can also consider other modes of gas transportation (e.g. tankers) from their offshore plants to Thailand and Burma.

Analysis of Decision

Imle should continue striving towards finishing the Yadana project for the following reasons

- Unocal's objective is to make Southeast Asia the center of its global focus. As long as Unocal is setting its sight of growing in Southeast Asia, facing political challenges is inevitable. Currently, the rest of Unocal's investments in Southeast Asia (Philippines, Vietnam, Thailand etc) are also in politically unstable countries. Even if Imle decides to withdraw from the project, facing political pressure is inevitable as long as Unocal is going to continue its expansion in Southeast Asia.

- Unocal has nothing to lose. Since Unocal has already invested in this project since May 1994, Imle should continue to move forward. If he withdraws now, he would lose all his investments and efforts for the past 3 years. Since the project is nearing completion, he should try to finish the project.

- Southeast Asia is poised for huge growth and profits. Although there is surmounting opposition, Unocal has not violated any laws or norms as a result of its participation in the Yadana project. Unocal has done its due diligence in doing it's part for the environment as well as the local communities (e.g. providing education, improved livelihood, high wages and improved standard of living, there too would be some support they can garner from the locals).

- As mentioned by Imle, even if Unocal pulled out of the project, any number of European or Asian oil companies would probably takes it's place. Therefore, pulling out may not effectively solve the situation.

Implementation Plan

In moving ahead with the continuation of the project. Unocal should take the following actions to try to resolve the potential challenges they are facing.

Challenge 1 - Surmounting dissatisfaction and pressure within Burma resulting from 4 critical aspects of the Yadana project

Firstly, Unocal should seek alliance with other foreign investors in Burma namely Texaco, Arco, Premiere Oil and Nippon Oil - Texaco and Arco being the most important allies because of their US roots. Given that they are all in the same predicament, together they will have more funds, resources and bargaining power in addressing SLORC, improving the communities within the Burmese community as well as lobbying to the United States on their cause of protecting their investment in Burma.

Together, they should continue putting pressure on SLORC to stop the widespread violence. Although there